As Stocks and Shares ISA season approaches, here’s my plan

Our writer explains his moves as the clock ticks down on the annual deadline for contributions to his Stocks and Shares ISA.

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It is now less than a month until the deadline for contributions to a Stocks and Shares ISA in the current tax year. That does not mean that such contributions need to be invested in that timeframe. But I find it can be a useful point in the year to stop and consider what to do with the cash in my own ISA.

Here is the approach I will be taking.

Mixing growth and income

Should I buy growth shares I think have great prospects of building profits in future? Or ought I to use my Stocks and Shares ISA to build a passive income stream thanks to the dividends I might receive?

I do not think the answer needs to be either one or the other. Instead, I am going for a bit of both.

Seeing my ISA as a long-term investment vehicle, I think the income opportunities it gives me are considerable. I own some fairly high-yielding shares such as ITV. Not only could such shares pay me sizeable dividends over the years, but by compounding them within my ISA I could build my portfolio even if I do not invest any additional money.

But growth potential is on the table too, thanks to my stake in firms like digital ad agency network S4 Capital. My plan here is simple: use the money in my ISA to buy some shares I think have strong medium- to long-term business growth stories, then largely ignore them for years to come as I wait for the businesses to prove themselves.

Keeping things simple – but diversified

I am sure I am not the only investor who sees a share triple or quadruple then think, “if I had invested my full ISA allowance into that last year, I’d have £60,000 now!

But while some shares soar, many do not. It is easy just to focus on the winners, something behavioural psychologists call survivorship bias. But if I had invested all of my Stocks and Shares ISA into a company that later went bankrupt, I would be left with nothing.

That explains why I always keep my portfolio diversified. A £20,000 ISA would comfortably allow me to do that, splitting the money between five to 10 companies.

But I still try to keep things simple and rewarding, by investing in a limited range of what I see as brilliant businesses rather than a larger number of companies I think are merely quite good. In investing as in life, the good is the enemy of the great.

Building my Stocks and Shares ISA

Finding great businesses is not difficult in my opinion. But managing to find great businesses that also have attractive share prices can be.

That is why I take my time. Although there is an annual deadline for contributing to an ISA, I am not in a rush when it comes to investing that money. So I patiently hunt for the sorts of brilliant firms selling at good valuations that I think can help me build my wealth.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

C Ruane has positions in ITV and S4 Capital Plc. The Motley Fool UK has recommended ITV. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

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